Liberty, Standard Bank developing short-term insurance offering

Long-term insurance specialist Liberty is gearing up to enter the short-term insurance market.

It has embarked on a joint venture with parent company Standard Bank to develop a range of competencies in both personal and commercial lines.

“The bank’s short-term insurer currently is about the tenth largest short-term insurer. It’s very much an embedded business that focuses on Standard Bank clients. What we’re building jointly is a new age insurer, we’re looking at telematics [and] digital capabilities to supplement what is already there,” said Casper Troskie, group financial director at Liberty.

He said the partnership is feasible for Liberty, in that the insurer can leverage off Standard Bank’s existing claims handlings capabilities rather than building its own from scratch.

The companies have not entered into a 50/50 partnership but will rather fund and own portions of the co-developed competencies that best suit their own needs.

Troskie would not disclose how much Liberty is contributing but said the group has already funded a project team and feasibility study, and is starting now to invest in the businesses.

The capabilities will continue to be built during the course of the year, with product offerings and launch dates likely to be announced at year end.

“It will take time to gain scale and profitability – as well as data for accurate risk pricing and underwriting – which may detract from management’s focus on other areas of the business. We have seen with Discovery that it is not easy to become profitable quickly, especially given the high levels of competition in the sector, and innovation comes at a cost,” said Rahima Cassim, a fund manager at Ashburton Investments.

Meanwhile, the group’s existing businesses did not fare well during the financial year ended December 31 2015.

Liberty chief executive Thabo Dloti said the financial results reflect the challenging economic conditions and strain on consumers across the territories in which it operates.

Headline earnings fell 46.2% to R2.21 million, largely due to the first time consolidation of the Liberty Two Degrees Reit, which compromises a portion of the group’s iconic property portfolio that was listed in December 2016.

The group said that an accounting mismatch related to the different reporting requirements for investment property assets attributable to Liberty Holdings and Liberty Group resulted in a negative earnings impact of R304 million.

It explained the property assets included in Liberty Holdings balance sheet were reported at open market value whereas that of Liberty Group’s Reit were at the listed price of the Liberty Two Degrees units. Liberty Holdings incurred a loss as the premium at which Liberty Two Degrees’ listed units traded increased relative to the underlying net asset value, which is based on the market value of the property assets.

“I said in our results that it’s noise. I know people think that it’s a big thing [but] nobody has lost money as a result of it. It’s just an accounting issue and unfortunately it’s here to stay,” Dloti told reporters.

Normalised headline earnings, adjusted to account for the consolidation of the Reit, decreased by 38.8% to R2.52 billion as the company’s shareholder investment portfolio was hammered by lower investment returns.

At the same time, a change in key assumptions partly due to changing consumer trends – such as an increase in retirement annuity withdrawals and disability claims as well as a deterioration in critical illness experience – and in anticipation of regulatory changes also ate away at earnings. Troskie said the assumption changes strengthen Liberty’s balance sheet and improve its ability to manage its business going forward.

Liberty Asset Manager Stanlib’s headline earnings fell 42% to R362 million, weighed down by low market returns and higher once-off costs related to the outsourcing of its administration business and provisioning for tax and client liabilities. Stanlib’s assets under management increased by 1% to R586 billion.

Despite the headwinds, Liberty’s group equity value per share was relatively unchanged at R145.86 compared with R145.96 previously. Its capital adequacy ratio remained relatively strong at 2.95x the regulatory requirement. And it maintained a total dividend of R6.91 per share.

To weather the challenging business climate, it has shut down its Own Your Life Rewards programmes, introduced enhanced product offerings such as Bold Living Annuity and repositioned certain businesses.

Cassim said future value erosion should be limited and that earnings should recover in the short term but questioned the group’s direction.

“An important question to ask is what unique niche Liberty will occupy in a competitive industry going forward.  That is not very clear at this stage,” she said.

Ian Cruickshanks of the SAIRR, echoed her statement, saying that Liberty’s path and target market are no longer “as clearly defined”.

“Under Donald Gordon, they targeted higher-income earners. Since Standard Bank, their market has changed to include lower- and middle-income earners too. It’s not clear who they are designing their products for anymore, they seem to have lost their path,” he said.

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